Press Conference
Canberra
1 December 2010
SUBJECTS: National Accounts; Mining Industry, Household Consumption, Nuclear Energy
TREASURER:
Today's GDP figures are another solid result for our economy in the context of a world economy which is fragile. In a sea of global uncertainty the Australian economy remains resilient.
The national accounts show our economy continued to grow in the September quarter, although at a slower pace than in the first half of this year. This is unsurprising given the increased uncertainty in the world economy, the impact of the high dollar and of course the wind down of policy stimulus. In a volatile global environment there are bumps in the road for our economy but Australia's economic fundamentals and growth prospects remain strong.
We have a huge pipeline of private investment, job creation which is the envy of the developed world and a budget returning to the black before our peers. These strong fundamentals mean that the future of the Australian economy remains bright and, of course, that's why the Government is so determined to strengthen our economy, so we can make the most of the opportunities which will flow from Mining Boom Mark II.
Now, I just want to run through some of the details of the accounts. GDP rose by 0.2 per cent in the September quarter and 2.7 per cent over the year. The transition from public investment to private investment remains on track.
Private consumption and business investment were key drivers of growth, each contributing 0.3 percentage points to growth in the quarter. The wind down of public infrastructure stimulus subtracted 0.3 percentage points from growth in the quarter. Household consumption grew by 0.6 per cent in the quarter and of course that was supported by strong job creation and household consumption is 3.2 per cent higher over the year.
We saw 105,000 jobs created in the three months to September and of course with that comes strong income growth.
But of course there's a fair amount of consumer caution, with households taking advantage of strengthening incomes to save a bit more and to pay down debt and of course you can see that in the rise in the housing saving ratio in today's figures. I think that's hardly surprising given diet of steady news that's come from Europe. You have to look no further than Ireland which, of course, lends itself to this type of consumer caution.
The terms of trade have risen to their highest levels in 60 years and of course the terms of trade are also driving higher business investment. New private business investment rose 2 per cent in the quarter, supported by a solid 7.5 per cent increase in engineering construction. Now we can expect to see some lumpiness in investment as we go forward, it's the nature of the investment that's in the pipeline but there is no doubting that there is a surge of investment still coming down that pipeline.
Last week's capital expenditure figures showed that businesses are planning to invest a record $124 billion in 2010-11. Now, while a lot of that is mining, as the chart over there shows, it is far more broadly based than mining. So there are strong investment intentions across all sectors although, of course, it is particularly focussed on mining. This investment will build future productivity and future export capacity and you can see this in the next chart. You can see that pipeline coming through, you can see the strength there of capital investment in mining and, of course, you can see what that will mean in terms of an increase in non-rural commodity exports. That chart shows an increase of around $80 billion in the value of non-rural commodity exports within the next five years up to more than $200 billion.
But in this current quarter, net exports subtracted 0.4 percentage points from growth, due to some one-off factors as well as the impacts of the higher dollar. Commodity exports, in particular, took a hit from weather conditions and scheduled port closures and in this quarter the closure of three Queensland coal ports meant that around 2 million tonnes of coal exports did not reach their markets in the September quarter.
So in conclusion there are swings and roundabouts in today's figures.
We have strong job creation, with over 100,000 jobs created in the three months to September; strengthening incomes which flow particularly after strong job creation; growth in business investment and a strong pipeline yet to come and, of course, solid growth in consumption despite the caution I talked about before. The caution is also a factor and that does flow from a volatile and uncertain global economy, a high dollar and of course the unwinding of policy stimulus, both fiscal and monetary.
But I think today's figures overall reinforce our view that we have every reason to be confident about the future of our economy and of course its prospects for the future. Now, economies are judged on their performance over years, not quarters and by any measure ours remains a stunning success.
Many other countries are still grappling with the consequences of the global recession. They're grappling with high unemployment, in this environment our economy is performing remarkably well. As this chart here shows two years on, two years on from the global recession just how strong Australia is relative to countries like Japan, the European area, the United States because they are still struggling to get back to where they were in early [20]08.
JOURNALIST:
Mr Swan…
TREASURER:
Sorry, I haven't finished yet. So I think that demonstrates the advantage of avoiding recession. I just wanted to have a final word on jobs because jobs are what this is all about. We've added something like 650,000 jobs in the past three years and, of course, that's a very important figure. It's not just about the jobs that were saved or the ones the ones that were created, it's about the hundreds of thousands of Australia workers who've been able to continue to be breadwinners and to look after their families. It's about the dignity of work and of course it's about putting in place the very strong foundations for us to continue to prosper in an uncertain global economy.
That's why we've got such a strong future agenda. That's why we're building up national savings. That's why we're building the transport infrastructure of the future, rolling out high speed broadband, training more Australian workers, helping business to compete through a cut in company taxes and of course, in many ways most importantly, returning the budget back to surplus faster than any other major advanced economy.
We're not complacent but we're confident about the future. We're determined to build a stronger and broader and more competitive economy and, of course, if we can get that right, all of that right, we can set the economy up not just for next year but for decades to come. Over to you.
And one other thing, I don't want to disappoint, but it hasn't probably escaped your attention that today being the 1st of December means the finish of not only November but also Movember and as you can tell, and I don't really want to point anyone out in particular, that there has been a particular contribution that has been made the team in the Treasury, some more than others. No, no, no, Collo and I are dragging the chain here. I was disappointed that mine didn't get the same attention that his did but anyway what I did want to do was to pay tribute not just to the team here but to all of the workplaces right around Australia where people really got stuck in, in a way in which I've never seen before. It's been a fantastic community mobilisation and the funds that have been raised by the Movember organisation for the very important cause of raising awareness about prostate cancer, doing something about depression and so on. It really does say something quite special about our community so I wanted to congratulate everybody here, naturally, who helped along the way and there are many here but most particularly to pay tribute to the work of Movember, not just nationally but also now internationally, in raising money for that very important cause.
JOURNALIST:
Mr Swan, we're out of the woods and on to some bumps in the road, which is very nice to see. But you've also talked about making the most of Mining Boom Mark II. Do we need to be reconsidering the idea of a sovereign wealth fund? You've talked about building national savings through superannuation, and that obviously helps but what the Governor of the Reserve Bank seemed to be talking about the other night was really about a fiscal instrument to get through bigger bumps in the road.
TREASURER:
Ok, can I just take a little bit of time to unpack all of that because there's a lot in it. I've got to say I read the Governor's speech and I thought it was a good speech. I thought it had some pretty important analysis in it. I thought it was thoughtful and it's exactly the sort of policy debate we want the country to have. And indeed it struck many of the themes that I put forward first in a speech to business economists in Sydney in May, one week prior to the Budget, where I asked this question about what do we as a country, do with both our good fortune and the bounty of the mining boom to make an enduring and lasting change in our economy, knowing the full consequences of what a mining boom means. It means great opportunity, great strength and income, but it also brings challenges with it – a higher dollar for example, competition for labour.
So what do we do as a country given this once in a generation mining boom? Well, actually, I'll just rewind that. It's not once in a generation. The Government was correct to say that we are now heading towards a level of commodity prices that are the highest in our history and that even when they come off they are going to be at a higher level historically than they've ever been before.
So these were themes that I laid out in that speech, and the Governor has done it in a slightly different context in this speech. And it is exactly where the Government's policy agenda is. It has been all year. Because we understand that we need to have a broadly based economy. We understand that not everybody will be going at the same speed. We don't want to in any way inhibit the speed of the mining sector, but we also have to do everything we can to help all of those that are in the slower lane. We just haven't got a two-speed economy, we've got a multi-speed economy. So the challenge is, what do we do as a nation to provide incentive to invest in those areas that are outside the immediate impact of the boom, what we do for all those corporates that are struggling with a higher dollar, what do we do for many of the small businesses that are finding it difficult in terms of labour supply and so on. And that's why the Government moved the way we did in the Budget and in our response to the Henry Review.
Now, we could talk about labour supply, we could talk about a number of issues, but the one you specifically asked me about was the issue of a sovereign wealth fund. And I directly addressed that question in the speech that I referred to before, back one week before the Budget. I made this very simple point: a central objective of national policy has to be to lift our national savings. And we are doing that. That's why when we were here for MYEFO only a few weeks ago, I talked about the nature of our return to surplus, the fastest fiscal consolidation since the [19]60s. But in that speech in addition to enhancing our public savings and bringing the Budget back to surplus as quickly as we can, we do need to lift private savings. And instead of just having one fund, I said in that speech we should consider the eight million superannuation accounts of Australians and what we can do to lift their level of private savings. And that's why in our response to Henry said we'd dedicate a portion of the revenue to the savings accounts of those on low incomes and that's why we have moved to increase the superannuation guarantee.
So some people say this could be done through a sovereign wealth fund. And by the way, the Governor did not endorse a sovereign wealth fund, despite the headlines that have been going around about that. He did not say that. He simply in a policy sense talked about what the alternatives would be and said one could be some sort of stabilisation fund. But our number one objective is to bring our budget back to surplus to increase public savings, and number two is to increase private savings, recognising just how capital hungry this country is and by increasing private savings by putting some monies into the superannuation accounts of the lowest paid workers - we do that.
But we also recognise that we also need to take the opportunity to make some of our businesses more competitive and also it's not just a question of savings, it's also a question of investment. Investment can be driven by a lower corporate rate, which we're committed to, which was once again a central recommendation of Henry, and on the other side of things, we do need to be investing in some critical infrastructure so we don't get the capacity constraints that developed when Mr Abbott and Mr Turnbull were sitting around the Cabinet table under the previous regime. As I pointed out to you at our MYEFO press conference, they were spending like drunken sailors at the height of Mining Boom Mark I when they should have actually been saving a lot more. We're not going to make the mistake that they made, which is why we've got our medium term fiscal policy in operation, and it's why we have targeted superannuation as such an important area for national savings, and it's why -- because we're capital hungry -- we want to bring our corporate rates down.
JOURNALIST:
(inaudible)
TREASURER:
Well I don't know it would make a lot of sense to be putting a whole lot of money into superannuation and still going over here in another fund. But by whatever means you do it, we're very strongly of the view that we have to increase our national savings and that's precisely what we are doing.
JOURNALIST:
Treasurer, don't today's figures show that the Reserve Bank is in danger of stalling the economy badly with its monetary policy?
TREASURER:
I think… Look, I have to make this very important point about today's figures and I think I came to it at the end of my remarks when I made the point that you don't judge an economy's performance on one quarter. You judge it over the year. You know, you don't blow the final siren at quarter time in a footy game. So we just ought to be aware of that when we're looking at the figures today. The fact is that the outlook is really strong. The fundamentals are strong, the investment pipeline is strong, so I'd just caution against over-reading, over-reading one particular set of quarterly figures.
JOURNALIST:
(inaudible) important point. Just going back to the Governor's speech, Treasurer, about stabilisation. It's not… Yes, you're addressing national savings, but what he was talking about was this issue of what we do when the rest of the world does collapse or blow up. Don't we need some form of greater fiscal stabilisation? Wasn't that what the resources tax was partly about and wasn't it the case that the IMF, after the global financial crisis, said that the economies that did best were the ones who had the capacity to make discreet fiscal adjustments, bigger than other countries?
TREASURER:
That's the reason we're coming back to surplus as quickly as we are. That's precisely why we are bringing the budget back to surplus. Now, whether you then go on to say the next policy step is a stabilisation fund, or whether you go on and say it's a combination of that and money put in superannuation accounts or whether you say you should take the opportunity during this period to do other things, is entirely an open question. But the Governor, and I repeat, did not, did not say that he was supporting a sovereign wealth fund as some headlines have said. That is just a misrepresentation of what the Governor said. So for the Coalition to go out and serially misrepresent the Governor's position on this and other things, I think is repugnant. But nevertheless, that's what they do.
It was a thoughtful analysis of where we are with Mining Boom Mark II and what the policy options are as we go forward. Obviously, if we were in a position of not only coming back to surplus but coming back to a position where we had no net debt, then maybe then, maybe then that would be an option. But I don't think the Governor was in any way suggesting a stabilisation fund, he certainly wasn't supporting it, he said it would be an alternative but I don't believe anyone who's familiar with this area would be saying you would have it, you wouldn't have it until a time in the future when you had no net debt.
JOURNALIST:
Treasurer, how tenable or how long do you think it is possible for the household saving rate to remain around 10 per cent because historically that's quite high. Does that run a risk of the Reserve Bank and yourself because of the rise of the concern of the consumer that has been talked about? (inaudible)
TREASURER:
Well, you know I think we still do live with the consequences of global financial crisis and the global recession and whilst we have been an island of resilience in a sea of uncertainty, we have been very fortunate that we are able to put a floor under confidence. And it is very clear that by putting in place our stimulus when we did, we buttressed consumer spending, particularly in the December quarter of 2008 and through 2009. We avoided three quarters of negative growth, unlike just about any other developed economy. And even now, as we go forward we still have reasonably solid household consumption: 0.6 per cent in the quarter growth, 3.2 per cent over the year.
Now, if you were operating, as they say, in a paradigm that was pre global financial crisis, you might view those figures as being relatively modest, considering the way people were spending prior to then. I think people have changed their behaviour, but it's not as if people have stopped consuming, they are still consuming, and even on these figures it's still solid consumption. So in a sense, I think, at the moment in some ways we've got a reasonable combination. People are still consuming, but obviously many people are taking the opportunity to pay off the credit card, to pay off the mortgage a bit more quickly. I think all of that's happening, but they're still consuming but they're doing it more cautiously. Everybody's commenting on it and you can see it as you move around the community and, of course that has some adverse impacts for some people, in particular in some retail sectors. But Australians have decided to do this, but I think they are still consuming.
So being responsible with consumption is something that we'd always wish for all of the households and I reckon our households are the best judge of their own circumstances. What we have to do with our national policy is put in place the sort of frameworks that I've been talking to you about today which will ensure that we have sustainable growth into the future to create the jobs that underpin the consumption that allow people to save.
JOURNALIST:
You talk about households being the best judge of their own financial circumstances. Anglicare reported yesterday that there's been a 40 per cent increase in the last year in the demand for financial counselling. And now they're having to make people wait a month before giving them an appointment. Is there a case for the Government to be doing more?
TREASURER:
I'll certainly have a look. I haven't read the Anglicare report as yet but I will take it on board, and I will have a look at it. We are always conscious of the importance of this area.
JOURNALIST:
The BCA today was talking about skill shortages (inaudible). They're also talking about wages blowouts. Now, given the number of projects in the pipeline that you're talking about, have you started talking to the unions about the need for wage restraint? And is there still room to reconsider once again the issue of visa requirements for skilled workers from overseas?
TREASURER:
Look I haven't seen the full text of what the BCA was saying, but I did hear them say on the radio this morning they wanted more spending on education and skills, they wanted a lower company tax rate and they wanted us to come back to surplus at the same time. We can't have everything at once if we actually do want to run a tight fiscal policy. So I just make that point. You can't have your cake and eat it too.
So we do take very seriously all of the issues associated with productivity and our economy. But if you just have a look in these figures, they're actually quite interesting here, that the wages growth in these figures today are about historical averages at a level that we normally have historically, I think it's about 3.9 [per cent] is the average in here, which is about what we'd normally expect. We would always be concerned if there was some sort of adverse event which led to things moving out of line with historical averages but it's not there in the figures today. But the Government is absolutely focused on dealing with the skills issues in the Australian economy, working with industry to ensure that we get the settings right, absolutely cognisant of the importance of this pipeline of investment and what it means for demands across our economy, and is responding to those issues – working with industry.
JOURNALIST:
The Opposition has been suggesting that the Government spending, stimulus has been putting upward pressure on interest rates. Don't today's figures – even though I heard loud and clear what you've said about one quarter – suggest the opposite, that maybe you're withdrawing your stimulus too fast and the price to pay there will be higher unemployment down the track?
TREASURER:
Well, we think we've got the mix right. I gave you the figures in my introduction. The withdrawal of stimulus is subtracting 0.3 percentage points from the overall growth figure but what you have seen in the figures is a modest growth in business investment. It's exactly the way we designed all of this to happen.
JOURNALIST:
But over the past year Mr Swan, over the past year what's been the subtraction from growth as a result of the withdrawal of the stimulus?
TREASURER:
I've just said.
JOURNALIST:
No, you said that was the quarter.
TREASURER:
0.3 [per cent]
JOURNALIST:
Is that 0.3 [per cent] of the –
TREASURER:
Sorry 0.6 [per cent]. 0.3 [per cent] for the quarter. 0.6 [per cent] for the year. And exactly once again – thank you for that – exactly as we said. We said for the calendar year, 1 per cent.
JOURNALIST:
Is there any more subtraction to come?
TREASURER:
Well, we said 1 per cent for the calendar year, at the moment we've got [0.3] per cent for the quarter.
JOURNALIST:
Treasurer, should nuclear power, nuclear energy, be part of the debate on energy and do you think Labor Party members have as much right to debate it at the National Conference as they do gay marriage?
TREASURER:
Well, we're a party of ideas and the membership has got the ability and indeed is encouraged to debate issues at our national conference and that's what they'll do. And it's not my job to go around and nominate what's worthy and what's not worthy. The membership will decide what they want to debate at the national conference. So that's what parties of ideas do.
JOURNALIST:
But do you think it should be part of the debate?
TREASURER:
And at least we've got some ideas, because I don't think in one year Tony Abbott's had one new idea, certainly one positive idea.
JOURNALIST:
Do you support nuclear, having a good hard look at it?
TREASURER:
I'm not a great supporter of it all, never have been, and I take that view for a variety of reasons, but this is a matter for National Conference. I don't intend to –
JOURNALIST:
What are those reasons Treasurer?
TREASURER:
Well, basically we are a country which has a plentiful supply of energy, both traditional energy supplies and renewable energy and that's what I'd like to exploit to its fullest, in the most environmentally responsible way. I don't think it's also cost effective for a nation such as ours. It's understandable it has to be part of the energy mix of many other countries in the region but not for us we don't need it economically.
JOURNALIST:
But if you go down the path of putting a price on carbon, don't you make nuclear more –
TREASURER:
I've not seen anyone make a case under any circumstances that's compelling in that area, and I know there's been a couple of valiant attempts to do it, but it doesn't seem to have ever gotten off the ground.
JOURNALIST:
Mr Swan, is it your intention to legislate the mining tax in the second half of calendar 2011 if you don't reach agreement with the big miners on royalties would you be prepared to legislate through that?
TREASURER:
We are going to legislate for the agreement that we reached with the miners and I would hope for all the reasons that we discussed earlier today that we could get Parliamentary approval for that because there is a rolled gold case for it. All of the doom and gloom that we heard about this matter during the first half of this year precisely at the time that the investment intentions were going through the roof. The fact is this is an overdue change to our arrangements which delivers greater value for the Australian owners of these resources and still makes it very competitive on the global scale. That's why people are continuing to come to this country and invest massive amounts of money in our recourses sector.
JOURNALIST:
Do you think that the mining tax will be a topic of debate at the tax summit? And what would be your priorities for debate at the tax summit?
TREASURER:
Well, I've yet to engage in a full dialogue on the breadth and scope of the tax summit with my colleagues. When I've done that I'll share that with you. But we are proceeding, I'm awaiting the final report of the Argus group. When that comes in it will then go, the tax will then through the normal consultative process that happens with any new piece of legislation. And when it's ready whether it's the second half of next year or sort of around the middle of next year, I can't say at this stage.
JOURNALIST:
(Inaudible)
TREASURER:
But we will proceed with our agreement with the industry, which I believe is a good agreement. The need for it has been demonstrated by the events of the last three to four months. We'll proceed with that and if people want to talk about it in other forums they can, but it won't be in any way inhibiting what we intend to do to implement our agreement with the mining industry.
